Project 2 Review of Merchandising Cycle The following information applies to the questions displayed below Wallys Widget Company (WWC) incorporated near the end of 2011 Operations began in January of 2012 WWC prepares adjusting entries and financial statements at the end of each month Balances in the accounts at the end of January are as follows Cash $ 20,570 Unearned Revenue (40 units) $ 5,000 Accounts Receivable $ 11,600 Accounts Payable (Jan Rent) $ 2,600 Allowance for Doubtful Accounts $ (1,550) Notes Payable $ 16,500 Inventory (45 units) $ 4,050 Contributed Capital $ 6,300 Retained Earnings Feb 1, 2012 $ 4,270 WWC establishes a policy that it will sell inventory at $150 per unit In January, WWC received a $5,000 advance for 40 units, as reflected in Unearned Revenue WWCs February 1 inventory balance consisted of 45 units at a total cost of $4,050 WWCs note payable accrues interest at a 12 annual rate WWC will use the FIFO inventory method and record COGS on a perpetual basis February Transactions 02 01 Included in WWCs February 1 Accounts Receivable balance is a $1,900 account due from Kit Kat, a WWC customer Kit Kat is having cash flow problems and cannot pay its balance at this time WWC arranges with Kit Kat to convert the $1,900 balance to a note, and Kit Kat signs a 6 month note, at 12 annual interest The principal and all interest will be due and payable to WWC on August 1, 2012 02 02 WWC paid a $700 insurance premium covering the month of February The amount paid is recorded directly as an expense 02 05 An additional 170 units of inventory are purchased on account by WWC for $12,750 terms 2 15, n30 02 05 WWC paid Federal Express $340 to have the 170 units of inventory delivered overnight Delivery occurred on 02 06 02 10 Sales of 140 units of inventory occurred during the period of 02 07 02 10 The sales terms are 2 10, net 30 02 15 The 40 units that were paid for in advance and recorded in January are delivered to the customer 02 15 15 units of the inventory that had been sold on 2 10 are returned to WWC The units are not damaged and can be resold Therefore, they are returned to inventory Assume the units returned are from the 2 05 purchase 02 16 WWC pays the first 2 weeks wages to the employees The total paid is $2,100 02 17 Paid in full the amount owed for the 2 05 purchase of inventory WWC records purchase discounts in the current period rather than as a reduction of inventory costs 02 18 Wrote off a customers account in the amount of $1,650 02 19 $5,200 of rent for January and February was paid Because all of the rent will soon expire, the February portion of the payment is charged directly to expense 02 19 Collected $9,300 of customers Accounts Receivable Of the $9,300, the discount was taken by customers on $7,000 of account balances therefore WWC received less than $9,300 02 26 WWC recovered $530 cash from the customer whose account had previously been written off (see 02 18) 02 27 A $600 utility bill for February arrived It is due on March 15 and will be paid then 02 28 WWC declared and paid a $750 cash dividend Adjusting Entries 02 29 Record the $2,100 employee salary that is owed but will be paid March 1 02 29 WWC decides to use the aging method to estimate uncollectible accounts WWC determines 8 of the ending balance is the appropriate end of February estimate of uncollectible accounts 02 29 Record February interest expense accrued on the note payable 02 29 Record one months interest earned Kit Kats note (see 02 01) 1 c Prepare the financial statements at the end of February (Balance Sheet only, items to be deducted must be indicated with a negative amount ) 1 c Prepare the financial statements at the end of February (Balance Sheet a must be indicated with a negative amount ) WWC, Inc Income Statement For the Month Ended February 29 evenues Sales Revenue ess Sales Discounts Less Sales Returns and Allowance et Sales Cost of Goods Sold Gross Profit xpenses Bad Debt Expense Insurance Expense Wages Expense Rent Expense Utility Expense Interest Expense otal Expenses nterest Revenue Net Income

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Jul 20, 2024

Project 2: Review of Merchandising Cycle [The following information applies to the questions displayed below.] Wallys Widget Company (WWC) incorporated near the end of 2011.

Project 2: Review of Merchandising Cycle

[The following information applies to the questions displayed below.]

Wallys Widget Company (WWC) incorporated near the end of 2011. Operations began in January of 2012. WWC prepares adjusting entries and financial statements at the end of each month. Balances in the accounts at the end of January are as follows:


Cash	$	20,570	Unearned Revenue (40 units)	$	5,000
Accounts Receivable	$	11,600	Accounts Payable (Jan Rent)	$	2,600
Allowance for Doubtful Accounts	$	(1,550)	Notes Payable	$	16,500
Inventory (45 units)	$	4,050	Contributed Capital	$	6,300
			Retained Earnings Feb 1, 2012	$	4,270

	WWC establishes a policy that it will sell inventory at $150 per unit.
	In January, WWC received a $5,000 advance for 40 units, as reflected in Unearned Revenue.
	WWCs February 1 inventory balance consisted of 45 units at a total cost of $4,050.
	WWCs note payable accrues interest at a 12% annual rate.
	WWC will use the FIFO inventory method and record COGS on a perpetual basis.

February Transactions
02/01	Included in WWCs February 1 Accounts Receivable balance is a $1,900 account due from Kit Kat, a WWC customer. Kit Kat is having cash flow problems and cannot pay its balance at this time. WWC arranges with Kit Kat to convert the $1,900 balance to a note, and Kit Kat signs a 6-month note, at 12% annual interest. The principal and all interest will be due and payable to WWC on August 1, 2012.
02/02	WWC paid a $700 insurance premium covering the month of February. The amount paid is recorded directly as an expense.
02/05	An additional 170 units of inventory are purchased on account by WWC for $12,750 terms 2/15, n30.
02/05	WWC paid Federal Express $340 to have the 170 units of inventory delivered overnight. Delivery occurred on 02/06.
02/10	Sales of 140 units of inventory occurred during the period of 02/07 02/10. The sales terms are 2/10, net 30.
02/15	The 40 units that were paid for in advance and recorded in January are delivered to the customer.
02/15	15 units of the inventory that had been sold on 2/10 are returned to WWC. The units are not damaged and can be resold. Therefore, they are returned to inventory. Assume the units returned are from the 2/05 purchase.
02/16	WWC pays the first 2 weeks wages to the employees. The total paid is $2,100.
02/17	Paid in full the amount owed for the 2/05 purchase of inventory. WWC records purchase discounts in the current period rather than as a reduction of inventory costs.
02/18	Wrote off a customers account in the amount of $1,650.
02/19	$5,200 of rent for January and February was paid. Because all of the rent will soon expire, the February portion of the payment is charged directly to expense.
02/19	Collected $9,300 of customers Accounts Receivable. Of the $9,300, the discount was taken by customers on $7,000 of account balances; therefore WWC received less than $9,300.
02/26	WWC recovered $530 cash from the customer whose account had previously been written off (see 02/18).
02/27	A $600 utility bill for February arrived. It is due on March 15 and will be paid then.
02/28	WWC declared and paid a $750 cash dividend.

Adjusting Entries:

02/29

Record the $2,100 employee salary that is owed but will be paid March 1.

02/29

WWC decides to use the aging method to estimate uncollectible accounts. WWC determines 8% of the ending balance is the appropriate end of February estimate of uncollectible accounts.

02/29

Record February interest expense accrued on the note payable.

02/29

Record one months interest earned Kit Kats note (see 02/01).

1-c.

Prepare the financial statements at the end of February. (Balance Sheet only, items to be deducted must be indicated with a negative amount.)

1-c. Prepare the financial statements at the end of February. (Balance Sheet a must be indicated with a negative amount.) WWC, Inc Income Statement For the Month Ended February 29 evenues Sales Revenue ess: Sales Discounts Less: Sales Returns and Allowance et Sales Cost of Goods Sold Gross Profit xpenses Bad Debt Expense Insurance Expense Wages Expense Rent Expense Utility Expense Interest Expense otal Expenses nterest Revenue Net Income